Identifying Equilibrium Models of Labor Market Sorting

Marcus Hagedorn, Tzuo Hann Law, Iourii Manovskii

NBER Working Paper No. 18661
Issued in December 2012
NBER Program(s):The Economic Fluctuations and Growth Program

Does the market allocate the right workers to the right jobs? Since observable (to economists) variables account for only a small fraction of the wage variance in the data, to answer this question it is essential to study assortative matching between employers and employees based on their unobserved characteristics. This paper enables this line of research. We show theoretically that all parameters of the classic model of sorting based on absolute advantage in Becker (1973) with search frictions can be identified using only matched employer-employee data on wages and labor market transitions. In particular, these data are sufficient to assess whether matching between workers and firms is assortative, whether sorting is positive or negative, and to measure the potential effect on output from moving any given worker to any given employer in the economy. We provide computational algorithms that implement our identification strategy given the limitations of the available data sets. Finally, we extend our identification and implementation strategies to the commonly used class of models of sorting based on comparative advantage and provide a test that discriminates between these models.

download in pdf format
   (727 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18661

Published: Marcus Hagedorn & Tzuo Hann Law & Iourii Manovskii, 2017. "Identifying Equilibrium Models of Labor Market Sorting," Econometrica, Econometric Society, vol. 85, pages 29-65, January. citation courtesy of

Users who downloaded this paper also downloaded* these:
Lise, Meghir, and Robin w18719 Mismatch, Sorting and Wage Dynamics
Bagger and Lentz w20031 An Empirical Model of Wage Dispersion with Sorting
Abowd, Kramarz, Perez-Duarte, and Schmutte w20472 Sorting Between and Within Industries: A Testable Model of Assortative Matching
Pierce and Schott w18655 The Surprisingly Swift Decline of U.S. Manufacturing Employment
Black, Devereux, and Salvanes w18660 Losing Heart? The Effect of Job Displacement on Health
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us